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| From the pages of: Energy Houston, v1n1 |
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Competitive Corporate Cultures: Why Innovators Are Leading Their Industries by Jeffrey K. Skilling President and COO Enron Corp. Today's energy marketing strategies pose a sharp contrast to the energy industry of 10 years ago. New businesses - created in response to deregulated markets that offer customers and companies an opportunity for direct interaction - require state-of-the-art tools and technologies, real-time market information, and extremely talented individuals who can analyze large volumes of data and execute contracts under constantly changing conditions. At Enron, only a handful of employees worked in the company's non-regulated businesses in 1985 - yet 7,000 do so today. These businesses are expanding and delivering strong risk management, finance, commodity marketing and asset development services to deregulating markets around the world. The growth of our industry is having a phenomenal effect on Houston's economy. Energy companies are driving up commercial and residential real estate prices by creating state-of-the-art trading floors and technology systems that rival the global financial centers of New York and London. As a result, thousands of energy professionals are relocating to the Houston area, and their consumption of goods and services is pumping millions of dollars in revenues back through the local economy. While the outlook for the energy industry is robust, the strength of the overall economy has contributed to a very competitive hiring climate. Businesses across all industries are hiring thousands of employees each week and expanding into new markets. As a result, the most significant challenge for leading energy companies today is finding and retaining talented people. Consider these recent statistics: • The U.S. unemployment rate is at a historical low - falling to 4.3 percent in recent months. • Houston's unemployment rate in April 1998 dipped to 3.7 percent, the lowest rate since December 1981. • More than two dozen of the nation's 100 largest publicly traded energy companies are based in Houston. • Some labor experts predict that the Houston market will face employee shortages for the next six to eight years. To compensate for today's tight labor market, energy companies are finding that they must recruit and maintain intellectual capital just as strategically as they compete for business. At Enron, we have learned that understanding our employees' needs and expectations is pivotal to building a strong workforce. Employees want to be challenged by their jobs, and they want to feel good about their employer. Their most important concerns illustrate how hiring strategies have been forced to change, just as products and services have been forced to change, to meet market expectations. Here are a few of the recruiting trends in today's market: Building strategic alliances with colleges. The level of investment in certain colleges, in terms of relationship building and financial contributions, is increasingly based on the expected return on investment for the company. Most often the return is considered to be the quality and quantity of hires anticipated over the long-term from a given campus. Companies are making contributions to the development of future talent through scholarships and programs that teach energy skills. For example, Enron recently initiated an innovative energy finance program in concert with a $3 million gift to the University of Texas School of Business to help develop the talent and skill sets used in the energy business today. By contributing to the training of students who can think strategically about energy commodity, financing, risk management and marketing activities, our entire energy industry will benefit from the consistent influx of fresh talent and creativity. More emphasis on employee development. Employers are aware that different age groups of employees have different needs and desires. For example, Generation Xers, those employees born after 1964, are committed to their work but subscribe to a greater lifestyle balance than their baby boomer counterparts. Baby boomers, due in part to their significant numbers, have traditionally taken a very competitive approach to their careers. As a result, top employers are listening carefully to what their prospective employees care about in terms of career satisfaction. Top MBAs have indicated that the companies they prefer to work for are those that (in descending order) will: • enable them to build successful careers; • offer competitive compensation; • promote exciting products and services; • offer a variety of tasks and assignments; • give immediate responsibility; • run a dynamic organization; • cultivate a strong corporate culture; • provide international relocation opportunities; • recruit employees who can work as part of a team and provide inspiration; and • offer training and development programs. (Source: Fortune magazine, 3-16-98.) More emphasis on the value of the contributor, rather than linkage to a specific job. Top employers are developing relationships with job candidates who have broad potential. While a strong individual may not be right for a specific job, he or she may possess characteristics that are important to the organization. At Enron, our philosophy has always been that it is more important to hire bright, capable people and give them the autonomy to find a niche than it is to create an inflexible bureaucracy of pre-defined ladders and structures. Leveraging additional resources to support recruiting. Hiring practices in Houston have typically been a 'reactive' process where employers wait until positions become available before they attempt to fill them. In today's marketplace, companies cannot afford to wait. Top employers who want to hire the very best people are recruiting from a strategic perspective and using any number of proactive efforts - speaking before professional associations, using electronic resume exchanges on the Internet and building relationships with a few selected search firms that become 'company experts' in order to identify potential employees whose skills match specialized job functions. Earlier challenges and greater variety. Employers of choice provide early challenges to enable employees to demonstrate their potential and make bigger contributions sooner. These companies also provide a variety of assignments through developmental/rotational programs. At Enron, for example, our tax, accounting and merchant services groups conduct initial interviews at universities and then bring selected candidates to Houston for a second round of interviews. Of the candidates who accept job offers, most will divide their first two years at Enron among several groups - possibly the compliance area, the wholesale energy operations and services group and the retail energy services group. At the end of the two-year period, department managers will make permanent offers to the employees in the areas where their skills provide the best fit. Enron was the top industrial recruiter at Wharton in 1997 and expects to hire 110 MBAs from major business schools in 1998. To remain successful with our recruiting objectives, we have to keep our finger on the pulse of the marketplace by cultivating a work environment that is both challenging and creative. Maintaining an Innovative Workplace While strategic recruiting is a critical starting place for building a competitive workforce, retaining experienced, creative people who are effective at risk taking and change is even more important. Regardless of the industry, research has shown that the most successful U.S. companies have continued to grow because they have continued to change. Typically, these leading companies have either invented totally new industries or completely reinvented existing industries. At Enron, employees are hired to adapt and change with the company. As our business changes, talented people within our workforce often create entirely new positions or take on challenging new roles. This affinity for change creates a sense of excitement in our workplace and helps Enron retain outstanding people who enjoy the freedom and opportunity our company provides. A significant factor in retaining talented employees involves allowing them to realize their potential by assigning them to projects in which they have a special interest, giving them opportunities to pursue what they do best and encouraging 'out-of-the-box' thinking. I often tell employees at Enron that our best ideas are directly proportional to their distance from the executive floor. Enron Chairman and CEO Ken Lay, likewise, has made the point that many suggestions which initially looked to be unreachable, undoable, or maybe even unwise, turned out to be brilliant in the end. We know that if we start shutting down ideas early on, employees will stop proposing ideas altogether. We believe three factors are critical to developing a competitive corporate culture: • Offering different compensation structures that support the needs of different businesses and help to create an entrepreneurial environment where rewards are based on value created; • Giving employees greater freedom to pursue new ideas and demonstrating that good ideas will be supported and funded by management; • Investing in employee develop- ment tools and technologies that help employees maximize their output in terms of product and service quality, market responsiveness and communication. At Enron, we spend approximately $280 million annually on training technology and the systems needed to execute our business strategies. While many companies have taken huge steps to illustrate their commitments to cultivating creativity, our industry still has a long way to go. For example, many utilities have hired hundreds of executives from other industries to create a competitive market culture but their overall desire to change from within has been slow to evolve. As a result, many of these new executives have been unable to implement the changes they were hired to champion. But competition is forcing all energy companies to change, and those who do not will see their customer bases erode or diminish altogether. Consider the microcomputer, air transportation and energy industry leaders of 10 years ago. If they're still around today, they look remarkably different, and their products and services are a thousand times more efficient. For energy competitors who expect to remain at the top of their industries 10 years from now, new infusions of creativity will be the key to maintaining their competitive positions. In addition to cultivating creativity, employers of choice are taking strategic approaches to building respect and loyalty among employees. Our research has indicated that how employees feel about their work environment and their employer bears significant influence on their long-term career outlook. As a result, we believe there are four areas that help to build respect and loyalty among any workforce: Personal development. Enron's educational benefits give employees the opportunity to increase their knowledge about subjects that are applicable to the energy industry and obtain critical skills that will help them perform at the top of their field. One policy we are particularly proud of is that we reimburse our employees for 90 percent of their education costs - far exceeding the standard corporate benchmark. We also are firm believers in helping employees develop their core competencies through innovative programs such as:• The Foundations of Finance and Accounting course, developed by Enron in conjunction with the Thunderbird School of Management;• The Executive Impact and Influence Program, a three-day program which helps our top executives improve their ability to influence decision-making throughout the organization (this program is based on 360- degree feedback); • A wide variety of technical and functional training programs. Employee benefits. Enron offers a flexible, creative menu of benefits that gives employees the opportunity to choose the right combination of coverage for themselves and their families. Without going into detail about each program, the important point is that we've made employee choice a priority in this area. We truly believe that given full information and access, employees, just like consumers, will know what's better for them than anyone else. We also look for easy ways to remove stress from employees' lives by bringing many services to our workplace, including onsite healthcare and physicians, a fitness center, cafeteria, convenience store and concierge. Maintaining a meritocracy. Allowing employees to maximize their opportunities to contribute, and then recognizing and rewarding them based on merit, is clear, fair and impactful. It attracts and retains the kind of people who are capable of benefiting from the rewards generated directly as a result of their own value-added efforts. Those are the kinds of people Enron needs. Demonstrating shared values. A corporate culture centers around values that are shared. Hiring people who already subscribe to similar values and having an employee population that 'talks the talk' builds a level of teamwork, satisfaction and loyalty that can directly impact competitive advantages. At Enron, we have identified respect, communication, integrity and excellence as our values. We are holding ourselves accountable for these values through performance reviews. One of the best ways of demonstrating our values is to nurture an open, collaborative work environment. Ken Lay and I review all of the electronic mail and voice mail we receive from employees, responding to their ideas and complaints. We also contribute articles to employee newsletters in order to focus on specific issues that are relevant to our entire workforce. In addition, we hold 'all employee' meetings twice a year so that we can review our financial and operational performance and take questions directly from employees; host 'floor' meetings with employees twice a year to encourage informal feedback; and, spend a considerable amount of time just walking through the various departments and talking to employees about their activities and projects. Finally, we take the top 400 managers worldwide to a three-day conference each year to discuss critical business issues, study future trends and exchange ideas. Taking Innovation to the Marketplace A competitive culture will translate to a bottom line performance that includes strong financial results, solid operations and a growing and loyal customer base. Sharp, intuitive employees will drive this effort in their attempts to try new things, dismantle outdated processes and create innovative solutions that help customers run their businesses smarter and more efficiently. Let me give you a few examples: Integrated Services. In a deregulated market, Fortune 500 companies are choosing to not spend their dollars on non-core energy investments even though they have the ability to attract capital at competitive costs. Their investment hurdle return rate simply does not justify that type of expenditure. Instead, these businesses are contracting with experienced energy management companies to make those investments. Enron's contract with Lockheed Martin Missiles and Space, for example, is an integrated agreement of energy, capital and services that calls for Enron to deliver power, provide approximately $6 million in project financing, build two substations and handle all of the ongoing operations and maintenance for the substations. Lockheed is guaranteed a discount on the energy, but has put the logistics of delivering the energy entirely in Enron's hands because that's our core business. We, likewise, have an incentive to perform. The faster we build the substations, the sooner Lockheed can benefit from lower energy costs and the sooner we will benefit from meeting our performance goals. Weather Protection. Despite careful planning, many companies have been taken hostage by random acts of weather. But Enron's weather risk management programs are designed to protect companies against these circumstances. Degree day swaps can provide revenue stability; floors and caps can provide revenues offsetting adverse weather conditions; and collars can ensure the same level of protection without the need for premium payments. Utilities, fuel distributors, agricultural companies, insurance companies and even retail establishments are using these options as safeguards against the financial impact of extreme weather conditions. For example, when consumer catalog companies mail out their winter apparel catalogs, they have found that sales are depressed if the catalogs are received during warm weather periods - yet increase if the weather is cold. As a result, the prevailing weather at the time of catalog distribution can significantly influence revenues and inventories. By combining risk management products with extensive historical weather databases, Enron can help manage the risks of warm weather during those first days of catalog distribution. Market Competition. Many incumbent utilities in deregulating markets are proposing retail electric competition plans that allow them to forestall competition as effectively as they can while forcing rate payers to pay off their bad investments. When Peco Energy submitted such a plan to the Pennsylvania Public Utility Commission, Enron filed a competing plan offering to assume all of the utility's roles, including the Provider of Last Resort role, and proposing to double the initial rate reductions to small consumers contained in the partial settlement plan. While the PUC rejected both plans, the settlement that was ultimately approved has become the best market structure in the country. Enron, for its part, was successful in working the legislative process to neutralize the support for Peco that naturally would have existed. The payoff for customers is an immediate guaranteed 8 percent savings, additional savings from marketplace competition and greater efficiencies from new technologies such as automated metering. Peco, likewise, has enjoyed an increase in its stock price, and the final settlement proves that both marketplace competition and an equitable outcome for utilities is possible. Conclusion Dramatic changes in the energy industry over the past 10 years have validated the need for an extremely sharp, versatile and well-educated workforce that can thrive in a fast-paced and constantly evolving marketplace. Deregulating markets offer significant growth opportunities for innovative energy companies, but a robust economy and a tight labor market will challenge these companies to think creatively about hiring and retaining individuals with strong risk management, finance and energy marketing expertise. By cultivating a corporate culture that encourages employees to act like entrepreneurs and take greater risks, energy companies will be well equipped to pursue the significant growth opportunities of the 21st century and customers will receive enormous benefits from their creativity and vision. Jeffrey K. Skilling is president and chief operating officer of Enron Corp. He pioneered the use of risk management products and longterm contracting structures in the natural gas industry. He sits on Enron's Board of Directors, is a rnember of the Advisory Board for the North American Electric Reliability Council and is chairman of the Texas Council on Economic Education. Jeff was recognized by the New York Mercantile Exchange as the first recipient of its Director's Award for Global Vision in Energy. |
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